Independent analysis

Report claims DNO’s £608m bid undervalues Faroe Petroleum

John BentleyThe board of Faroe has produced analysis suggesting Norwegian company DNO’s £608 million bid undervalues the North Sea oil explorer.

An independent report on its assets, ahead of today’s closing date, implies a valuation for Faroe in the range of 186p to 225p per share.  The Faroe board says this “clearly highlights the inadequacy of DNO’s offer of 152p per share in cash`”.

Gaffney, Cline & Associates, an independent oil and gas industry firm, concludes that the value of Faroe’s oil and gas assets reflecting current market oil pricing is in the range of $879m to $1.076 billion.

The implied valuation of 186p to 225p per share on a fully diluted basis is adjusted for net cash as at 30 September 2018, representing a 22% – 48% premium to DNO’s Offer price.

GCA’s valuation report was prepared on figures at 30 September but updated to reflect the current oil price environment and latest drilling results including for Brasse, which have been announced today. It estimates Faroe’s reserves to be in the region of 102m of barrels.

The board says the report “further reinforces the board’s view that DNO’s offer is opportunistic and substantially undervalues Faroe.”

GCA’s valuation does not account for the Equinor asset swap on the basis that this has not completed yet and consequently does not reflect the tax synergies that Faroe expects to realise through the accelerated utilisation of our Norwegian tax loss position from this transaction

It also does not reflect Faroe’s scarcity value in the current tight upstream M&A market, especially on the Norwegian Continental Shelf as described by Wood Mackenzie in its “Norway’s M&A Market” October 2018 report. 

John Bentley, chairman of Faroe, pictured, said: “GCA’s independent valuation clearly supports our view that DNO’s Offer substantially undervalues Faroe.

“Its valuation of Faroe’s oil and gas assets implies a value per share for Faroe in the range of 186p to 225p per share representing a 22%-48% premium respectively to DNO’s offer price.” 

See also:

DNO urges Faroe investors to consider performance issues

Faroe urges investors to snub DNO’s £608m cash offer

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